After carrying out repeat simulations of various investment strategies (100,000 simulations per strategy), we found that one of the most successful was to spread your risk among as many companies as possible.
The assertion that higher returns are more likely when investing in larger, later-stage rounds is nothing new, since the businesses raising these larger rounds have already undergone the smaller fundraises and survived to raise again.
These simulations assume that a fixed amount is invested into a single round of each company, with no follow-on investments being made. It (2020) is the proven UK’s Syndicate Room Fund Diversification Model.
For Early-Stage Startup: The type of radical diversification continues to hold true when applied to smaller rounds of early-stage companies (£150,000–£2m), though the rate of return slows once the portfolio reaches around 30 investments (SR, 2020).
Later Stage Round: This strategy focuses on making at least 30 investments into companies raising between £500,000 and £5m. On average, such a portfolio returned 3.7x of the initial investment in total over a seven-year period; when diversifying even more dramatically into 80 companies, this figure returned 4.7x (SR, 2020).